Financial stability, deflation, & monetary policy

CENTRAL BANK RESEARCH - This working paper by Federal Reserve Bank of Richmond economist Marvin Goodfriend explores the relationship between financial stability, deflation, and monetary policy.He says that monetary policy is a fundamental source of deflation and stagnation risk when price stability is fully credible. But he also says monetary policy has the power to preempt deflation and the power to overcome the zero interest rate bound to restore prosperity after a deflationary shock.

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